When does Common Law apply?
Under the Consumer Protection Act (CPA) 68 of 2008, consumers have the right to fair value, good quality and safety. So how does this apply to property transactions?
Estate agents need to understand both how common law applies to certain property transactions and under which circumstances the CPA applies.
Once-off sale of residential or vacation property
The CPA only applies to the sale of immovable property where the seller is a property developer and investors who buy, renovate and sell houses as a business.
Whereas for the sale of a home or a holiday home, the CPA does not consider this to be in the “ordinary course of business” and its regulations regarding property defects do not apply. Instead common law is applied.
Common law takes two positions regarding the liability of the seller – namely the inclusion and the exclusion of the “voetstoots” clause.
Voetstoots clause excluded
When the voetstoots clause is excluded from the sale agreement, the common law position is that the seller will not be held liable for clearly noticeable (patent) defects on the property. The law assumes that the buyer will do a reasonably careful inspection of the property and spot the visible defects before signing an agreement to purchase.
However, the law also assumes that the seller will disclose all hidden (latent) defects that may exist. Should the buyer detect latent defects after the purchase, the common law position is clear. The seller is liable and the buyer may claim compensation from the seller.
Voetstoots clause included
The voetstoots clause is included in the sale agreement when the buyer agrees to buy the property “as it stands” with full knowledge of its defects. In this case the seller has a duty to disclose all hidden (latent) defects to the buyer. At the same time the onus is on the buyer to carefully inspect the property before purchase. The buyer must be satisfied that there are no visible or obvious (patent) defects. This means that the voetstoots seller is not liable for patent or latent defects that have been disclosed.
However if undisclosed defects are detected by the buyer after the purchase, he may claim for compensation from the seller; provided that he can prove that the seller knew about the defects and failed to disclose them. This can be difficult.
Attorneys are therefore often reluctant to sue the seller under common law. Instead they turn to the CPA. This means it could be the estate agent and not the seller who faces legal action!
So what are the circumstances that expose the estate agent to such risk? Read Part 2 of this article to find out more.